What is the condition for receiving payment under the Stretch Zone unit appreciation rights plan?
Stretch_Zone Franchise · 2025 FDDAnswer from 2025 FDD Document
uture operating results.
NOTE J - UNIT APPRECIATION RIGHTS LIABILITY AND LONG-TERM INCENTIVE PLAN
On December 28, 2021, the Company adopted a unit appreciation rights plan. The plan provided the right to receive payment in cash based upon varying vesting schedules and only upon a change in control, as defined. The payment is determined upon the fair value appreciation of these rights, as defined, from the date of issue to the date of conversion, and the awards expire upon termination of continuous service, as defined. Since the inception of the plan, 251,081 appreciation rights, as defined in the unit appreciation rights plan agreement, were granted. At December 31, 2022, the Company recorded a liability of $17,897,523 based on the appreciation in intrinsic value, the probability of a change in control, and the portion of the vested units. The intrinsic value appreciation was based on the transaction price of the change in control transaction effective March 31, 2023 and represents the actual cash paid at that time under the plan. The unvested units vested upon the change in control and the Company recognized an additional liability and related expense of $12,199,919 at
Source: Item 3 — Franchisee/Debtor's Warranties. (FDD pages 263–364)
What This Means (2025 FDD)
According to the 2025 Stretch Zone FDD, the unit appreciation rights plan, adopted on December 28, 2021, provides the right to receive cash payments. However, this is conditional and only occurs upon a "change in control," as defined within the plan. The payment amount is based on the fair value appreciation of these rights from the issue date to the conversion date. These rights expire if continuous service is terminated.
Since the plan's inception, 251,081 appreciation rights have been granted. As of December 31, 2022, Stretch Zone recorded a liability of $17,897,523, which was based on the appreciation in intrinsic value, the probability of a change in control, and the portion of vested units. The intrinsic value appreciation was determined by the transaction price of the change in control transaction, which took effect on March 31, 2023, and represents the actual cash paid at that time under the plan.
Upon the change in control, unvested units also vested, leading Stretch Zone to recognize an additional liability and related expense of $12,199,919 on March 31, 2023. This total liability was settled using the proceeds from the acquisition by the Parent company. It's important to note that the Parent company also issued a long-term incentive plan to employees, consultants, and board members, with units vesting over time or based on performance.